In September last year, the country embarked on a new journey that is envisaged to take the economy to a middle-class.

In the second Economic Development and Poverty Reduction Strategy (EDPRS II), Rwanda plans to drive growth and improve people’s living standards through industrial development and fostering entrepreneurship to ensure job-creation.

Small loans, big difference

To realise the above EDPRS II goals, the micro-finance sector must play a key role considering that it targets the majority of Rwandans; those that aren’t served by the mainstream financial services.

The financial services delivered by micro-finance institutions to the unbanked masses, especially small loans to the poor, will be critical if the national growth blueprint is to succeed.

The micro-loans have helped thousands of Rwandans start businesses that ensure a sustainable source of income and, hence, citizens are able to lead better lives, pay bills and school fees for their children.

The sector has in the past boosted financial inclusion, increased access to credit, especially to small-and-medium enterprises, a sector that is crucial for sustainable growth.

With each cell (akagari) having some sort of a micro-credit institution, experts are confident that the sector is well-positioned to deliver EDPRS II objectives if it’s harnessed and supported adequately with skilled personnel and sound reporting systems.

Recent growth trends

The sector has seen tremendous growth in the recent past, according to the National Bank of Rwanda statistics.  

The central bank indicate that the micro-finance industry has 491 institutions, including 13 limited companies and 478 SACCOs, 416 of which are Umurenge SACCOs.

The sector’s assets base increased by 27.4 per cent to Rwf128.7b last year, up from Rwf101b in 2012. 

This was mainly driven by the liquid assets and loans, which rose by 27.2 per cent and 24.2 per cent, respectively, from Rwf33.1b to Rwf42.1b and Rwf59.2b to Rwf73.5b, respectively between 2012 and 2013, according to Dr Thomas Kigabo, the central bank chief economist.

Capital adequacy ratio was at 33.4 per cent last year, above the minimum regulatory requirement of 15 per cent.

Liquidity ratio stood at 80.5 per cent against the minimum required of 30 per cent and the asset quality significantly improving as the non-performing loans ratio declined to 6.8 per cent in 2013 from 8.5 per cent the previous year.

Umurenge SACCOs recorded a 31 growth in deposits, reaching Rwf36.9b 2013 from Rwf28.2b a year before.

Loans granted under this sector increased by 54.7 per cent from Rwf13.9b in 2012 to Rwf21.5b in 2013.

The micro-finance industry interest rate is about 15 per cent compared to 19 per cent offered  by commercial banks. This sector has become the first option for the majority of micro and SME industry players because of its low rate.

What this growth means to the economy

Daniel Muhimuzi, the OIKO Credit Rwanda country manager, says the recent impressive performance of the sector makes it one of the vital components of the financial industry and economy generally, thanks to its wider reach.

He says the sector is rightly positioned to ensure that the country’s growth agenda is realised. Rwanda targets a 11.5 per cent annual growth rate, reducing poverty levels to less than 30 per cent, creating over 200,000 off-farm jobs annually and attaining a middle income status, where every Rwandan is able to earn $1,240 per year (GDP per capita) in the medium term.

"These targets rotate around the issue of access to development finance so that people can start income-generating activities, save and re-invest in the economy to create jobs and boost national revenue collections. The micro-finance sector has been positioned to achieve these objectives,” Muhimuzi says.

Marie Vianney Nzagahimana, the chairperson Association of Micro-finance Institution in Rwanda notes that the main role of the sector is to fight poverty "by taking financial services to the grassroots at affordable rates”. 

He adds that this has encouraged people to acquire small loans and start up income-generating projects and thus reduce poverty among the masses.

Nzagahimana, who is also the board chairman of Umwalimu SACCO, says the sector has done a lot to foster entrepreneurship as well as a saving culture and innovation, which he says are "key to ensuring sustainable growth”.

He, however, acknowledges that the sector needs to adapt technological in-services and attract finance to serve people better.

Eric Rwigamba, the director general for financial sector development at the Ministry of Finance, says a lot needs to be done to improve the skills of personnel in the sector in order to  enhance corporate governance, innovation and relevant product development. 

"People without collateral also need to be served to fulfill the government’s goal of financial inclusiveness as per EDPRS2 objectives,” he points out.

Rwigamba argues that more access to finance translates to more investments, resulting into sustainable growth. He notes that they are looking at ways the sector can provide lease products and private equity.

According to the director of microfinance supervision at the National Bank of Rwanda, Kevin Kavugizo, the micro-finance sector has played a pivotal role in improving financial literacy and easing access to financial services, especially among the rural masses.

Kavugizo says micro-finance institutions promote financial discipline, an ingredient that is necessary to boost savings and business growth.

Continued support to unbanked masses

Peter Rwema, the director of research and development at  the Association of Micro-finance Institutions Rwanda, says the sector will continue extending  financial service to the masses, innovate and attract funds for on-lending to their members.

"We are aware that delivering the country’s medium-term growth targets requires us to continue repositioning ourselves, especially adapting information communication technologies to reduce operational costs and improve efficiency in service delivery,” Rwema says.

Challenges ahead

While the sector is performing well, enormous challenges abound, including limited liquidity, lack of innovation and bad loans. 

Frank Bakx, a technical adviser at Rob-Bank technical, has urged micro-finance institutions to constantly innovate and use ICTs so as to stay relevant to customers.